Wednesday, August 22, 2007

INDIA'S DRUG MARKET TO REACH $20 BN CAPITALIZATION BY 2015

Currently, the retail sales value of India's high-growing drug market is on the solid path to sustain sound growth of market capitalization. Financial times reports that Indian drug market is projected to reach a remarkable $20 billion USD net capitalized value by 2015. India, with an outstanding 8,4 percent growth rate driven by high-return investment infusions, outperforms the rest of the world as is estimated to grow by 7,8 percent in 2008 (link).

It is noteworthy that India's human capital sector is growing rapidly, with two universities among top 100 Asian universities (link). Significant gains in output growth reflect the India's composition of the GDP where services dominate 60,7 percent of the GDP.

The forecast is favorable for the drug market, implying a forecasted 12,3 percent growth rate annually. The mechanics behind the significant growth of drug market can be explained by both, supply and demand. On the side of demand; with regard to market preferences (utility functions), a growing income standard leads to a growing demand for specific drugs driven by high rates of chronical diseases in India.

On supply side, India's pharmaceutical industry is processing a sectoral and price convergence of productivity and product quality, leading to new varieties of product choice delivered on the market to improve the health-care conditions individually.

Private investment such as hospital chains can naturally generate greater revenue and profit as opposed to public hospitals, and consequently higher rate of overall market capitalization which is an important aspect of international sectoral competitiveness.

Even health insurance is expected to double by 2015. As a responding incentive, new insurance claims and joint-ventures (to reduce the risk of sufficent capital allocation) could further boost the volume of capitalization and the size of investment pouring into India's high-growing health-care sector. Openness to technological innovation is an important pre-condition for delivering external results to match-up the relationship of supply and demand in the market.

One of the questions is whether government should intervene the drug market and impose price controls? The imposition of price controls negativelly affects both, supply and demand, in the long run. In fact, if a national agency or some governmental body decides to fix the price of qualified drugs, it cannot reach supposed results due to the lack of supply information. If government officials decide to lower the price of genetic drugs where the elasticity of demand is prone to changes in price and quality, then lower price fixation would result in shortages of supply of generic drugs.

On the other side, the upward fixation of the price could result in an unsold surplus and the demand side would be denied the access to generic drug products due to higher price which obviously wouldn't match the demand precisely. The excess regulation of health insurance and subsidies attached to generic industry through hidden contract inversion, delivers negative results and side-effects nevertheless.